Working Papers (INO) Titler

How firms organize the production of user modifications in the computer games industry

Jeppesen, Lars Bo(København, 2004)

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Modding – the modification of existing products by consumers – is increasingly exploited by manufacturers to enhance product development and sales. In the computer games industry modding has evolved into a development model in which users act as unpaid "complementors" to manufacturers’ product platforms. This article explains how manufacturers can profit from their abilities to organize and facilitate a process of innovation by user communities and capture the value of the innovations produced in such communities. When managed strategically, two distinct, but not mutually exclusive business models appear from the production of user complements: firstly, a manufacturer can let the (free) user complements "drift" in the user communities, where they increase the value to consumers of owning the given platform and thus can be expected to generate increased platform sales, and secondly, a manufacturer can incorporate and commercialize the best complements found in the user communities.
Keywords: innovation, modding, user communities, software platform, business model.
JEL code(s): L21; L23; O31; O32

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This article suggests a rationale for statutes of limitations in sales law, i.e. for the practice of cutting off buyers’ remedies after the expiration of a limitation period. The rationale is based on the notion of wear and tear, which carries two implications: First, a good that breaks down after several periods of use is likely to be of nearly optimal quality, and in this case little is gained by allowing a claim. Second, the number of dysfunctions is likely to increase over time, which implies that the pool of potential claims, and in particular the pool of unjustified claims, is likely to increase over time. It will be shown theoretically that these implications can provide a rationale for cutting off claims. The rationale will be supported with empirical evidence stemming from a recent extension of the limitation period from one to two years in Denmark.

This report maps research in institutional economics in management science in the European Union for the 1995 to 2002 period. The reports applies Internet search based on a university listing, search on journal databases, key informants and an internet-based survey. 195 researchers are identified. In (sub-)disciplinary terms, organization, strategy, corporate governance, and international business are the major areas of application of institutional economics ideas. In terms of countries, the EU strongholds are Holland, Denmark, UK, and Germany. There is apparently no or very little relevant research in Ireland, Portugal, Luxembourg and Greece. Based on the findings of the report, it seems warranted to characterize the EU research effort in the field as being rather dispersed and uncoordinated. Thus, there are no specialized journals, associations or PhD courses. This state of affairs is partly explainable by the highly pragmatic way in which research in management science is typically conducted (so that institutional economics approaches are likely to be merely one type of input among many). Keywords Institutional economics, management science, European union.

Theory predicts that entrepreneurs have distinct attitudes towards risk and uncertainty,
but empirical evidence is mixed. To better understand the unique behavioral characteristics
of entrepreneurs and the causes of these mixed results, we perform a large ‘lab-in-the-field’ experiment
comparing entrepreneurs to managers – a suitable comparison group – and employees
(n = 2288). The results indicate that entrepreneurs perceive themselves as less risk averse than
managers and employees, in line with common wisdom. However, when using experimental
incentivized measures, the differences are subtler. Entrepreneurs are only found to be unique in
their lower degree of loss aversion, and not in their risk or ambiguity aversion. This combination
of results might be explained by our finding that perceived risk attitude is not only correlated to
risk aversion but also to loss aversion. Overall, we therefore suggest using a broader definition
of risk that captures this unique feature of entrepreneurs; their willingness to risk losses.

Part I of this paper applies the principles of the philosophy of science and the derived scientific method to analyze the foundational concepts and core proposition of the Resource-Based View (RBV) as popularized by Barney (1986, 1991, 1997). This analysis identifies seven fundamental conceptual deficiencies and logic problems in Barney’s conceptualization of "strategically valuable resources” and in Barney’s VRIO framework for identifying strategically valuable resources that can be sources of sustained competitive advantage. Three problems -- the Value Conundrum, the Tautology Problem in the Identification of Resources, and the Absence of a Chain of Causality -- relate to the RBV’s and VRIO’s failure to provide an adequate conceptual basis for identifying strategically valuable resources. The Uniqueness Dilemma, the Cognitive Impossibility Dilemma, and an Asymmetry in Assumptions about Resource Factor Markets result in an inability of the VRIO framework to support identification of resources that can be sources of sustained competitive advantage. More fundamentally, the core proposition of the RBV – that resources that are strategically valuable, rare, inimitable, and organizationally embedded are sources of sustainable competitive advantage – is argued to result directly in the Epistemological Impossibility Problem that precludes use of the scientific method in RBV research. This paper argues that until these conceptual deficiencies and logic problems are recognized and remedied, the RBV – in spite of its current popularity -- is and will remain theoretically sterile and incapable of contributing in any systematic way to the development of strategy theory. Part II of this paper then suggests how foundational concepts developed within the competence perspective on strategy provide essential remedies for the identified deficiencies and problems in the RBV -- and thereby provide a more conceptually adequate basis for representing the nature of firms in the scientific study of their interactions and competitive outcomes.

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This paper explains two fundamental approaches to knowledge management. The tacit
knowledge approach emphasizes understanding the kinds of knowledge that individuals
in an organization have, moving people to transfer knowledge within an organization,
and managing key individuals as knowledge creators and carriers. By contrast, the
explicit knowledge approach emphasizes processes for articulating knowledge held by
individuals, the design of organizational approaches for creating new knowledge, and
the development of systems (including information systems) to disseminate articulated
knowledge within an organization. The relative advantages and disadvantages of both
approaches to knowledge management are summarized. A synthesis of tacit and
knowledge management approaches is recommended to create a hybrid design for the
knowledge management practices in a given organization.

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The Effects of International Trade Fairs, Conventions and Other Professional Gatherings

Maskell, Peter; Bathelt, Harald; Malmberg, Anders(København, 2004)

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Business people and professionals regularly come together at conventions,
congresses, conferences, trade fairs and exhibitions. Here, their latest and most advanced
findings, inventions and products are revealed and evaluated by peers and competitors, as
well as by customers and suppliers. Organising or participating in such events are means to
identify the current market frontier, take stock of relative competitive positions and form
future plans. These events exhibit many of the characteristics ascribed to permanent
clusters, albeit in a temporary, periodic and intensified form. The temporary clusters are
hotspots of intense knowledge exchange, network building and idea generation.
In investigating the extent and nature of these phenomena, the present paper explores a
number of issues. First, it shows that international trade fairs and other professional
gatherings are events which enable firms to compare their own products with others which
are available to the world market. Comparisons to and interactions with other firms
stimulate processes of knowledge creation. Second, it demonstrates how trade fairs are
important for firms when selecting partners with whom to develop global pipelines,
enabling access to distant markets and technologies. Third, it compares such temporary
clusters with permanent territorial hubs within their respective sector or industry. If regular
participation in temporary clusters could satisfy a firm’s need to learn through interaction
with suppliers, customers, peers and rivals, why is the phenomenon of permanent clustering
so pervasive?
The answer, it is claimed, lies in the restrictions imposed on economic activity when
knowledge and ideas are transformed into valuable products and services. The paper sheds
new light on how interaction among firms in current clusters coincides with the
configuration of knowledge-intensive pipelines out of the cluster. It examines the
procedures selected by firms in developing ideas or gaining access to new knowledge and
compares these organisational forms to those chosen when using knowledge for commercial
purposes.
Keywords: economic geography, knowledge creation, clusters, temporary clusters, trade
fairs, conventions, pipelines
JEL-codes: D83, L22, O17, O18, R12

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An Application to Residual Income Based Measures like Economic Value Added

Sloof, Randolph; Van Praag, Mirjam(Amsterdam, 2014)

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Distorted performance measures in compensation contracts elicit suboptimal behavioral responses that may even prove to be dysfunctional (gaming). This paper applies the empirical test developed by Courty and Marschke (2008) to detect whether the widely used class of Residual Income based performance measures —such as Economic Value Added (EVA)— is distorted, leading to unintended agent behavior. The paper uses a difference-in-differences approach to account for changes in economic circumstances and the self-selection of firms using EVA. Our findings indicate that EVA is a distorted performance measure that elicits the gaming response.

We study how the skill distribution for an economy responds to changes in the skill premium
induced by trade integration. Using administrative data for Denmark (1993-2012) and
Portugal (1993-2011), we conduct a two-step analysis. In the first step we predict the skill
premium changes which are triggered by exogenous trade shocks. In the second step we
estimate the impact of such changes on the skill distribution. The main results for Denmark
show that both the average and the standard deviation of skills increase as a result of trade
integration. For Portugal we find instead that the impact of trade mediated by skill premium
changes is negligible and not statistically significant. We provide a theoretical intuition to
rationalize both sets of results.